TY  - JOUR
AU  - Atella,Vincenzo
AU  - Bhattacharya,Jay
AU  - Carbonari,Lorenzo
TI  - Pharmaceutical Industry, Drug Quality and Regulation:  Evidence from US and Italy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14567
PY  - 2008
Y2  - December 2008
UR  - http://www.nber.org/papers/w14567
L1  - http://www.nber.org/papers/w14567.pdf
N1  - Author contact info:
Vincenzo Atella
University of Rome Tor Vergata
E-Mail: atella@uniroma2.it

Jay Bhattacharya
117 Encina Commons
Center for Primary Care
and Outcomes Research
Stanford University
Stanford, CA  94305-6019
Tel: 650/736-0404
Fax: 650/723-1919
E-Mail: jay@stanford.edu

Lorenzo Carbonari
Centre for Economic and International Studies
University of Rome "Tor Vergata"
Via Columbia, 2 - building B
00133 Rome, Italy
E-Mail: lorenzo.carbonari@uniroma2.it
AB  - This paper examines the relationship between drug price and drug quality and how it varies across two of the most common regulatory regimes in the pharmaceutical market: minimum efficacy standards (MES) and a mix of minimum efficacy standards and price control mechanisms (MES+PC). Through a simple model of adverse selection we model the interaction between firms, heterogeneous buyers and the regulator. The theoretical analysis provides two results. First, an MES regime provides greater incentives to produce high quality drugs. Second, an MES+PC mix reduces the difference in price between the highest and lowest quality drugs on the market. The empirical analysis based on US and Italian data corroborates these results.
ER  -